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Fun mental experiment: Should the world ever value the global stock of Bitcoin similarly to gold, Bitcoin's market capitalization would increase by around 1,30

by cs702 11y ago

Fun mental experiment: Should the world ever value the global stock of Bitcoin similarly to gold, Bitcoin's market capitalization would increase by around 1,300 times, from ~$6 billion to ~$7.8 trillion, and the price per Bitcoin would increase from around $460/BTC to around $600,000/BTC, give or take. If this sounds "crazy," consider that in many ways, Bitcoin is more convenient than physical gold: it's cheaper to secure, transport, and hide; and unlike gold, it's backup-able. -- On a related note, here are some additional thoughts on Bitcoin I wrote four years ago, when its price was $9/BTC: https://cs702.wordpress.com/2011/05/29/on-the-potential-adoption-and-price-appreciation-of-bitcoin-in-the-long-run/ https://cs702.wordpress.com/2011/05/29/on-the-potential-adop...

bunnymancer 11y ago
Bitcoin is, however, unlike gold, not a physically limited resource, which is what makes gold a more functional trading goods. The entire concept of economy relies on the belief that an item without value can be used to represent value. Which is only accomplished through the belief of rarity.
- Hortinstein 11y ago
  Bitcoin does have a mechanism to mirror this though. The rate of discovery halves every 4 years and only 21 million will ever be issued. When the blockchain was started 50 Bitcoins per block were awarded until november 2012 when it was halved to 25. It is predicted to half again in 2017. https://en.bitcoin.it/w/index.php?title=Controlled_supply&redirect=no https://en.bitcoin.it/w/index.php?title=Controlled_supply&re...
- morgante 11y ago
  Bitcoin is just as rare as gold (in fact, rarer). Mining only happens at a certain rate (you can't just materialize Bitcoins out of thin air) and it is capped at 21 million total.
  - mynameisvlad 11y ago
    You do know where gold comes from, right? From real, physical mines. It's not like you can materialize it out of thin air either (well, strictly speaking, you can, but it's not feasible currently) and there's a limited supply; however much is in the earth.
    - morgante 11y ago
      Uh, yes I know that. My core point is that Bitcoin and gold are equally rare, not that gold is somehow not rare. Bitcoin might be considered "rarer" to the extent that the rate is pretty much fixed. It's not trivial to double the overall mining rate, whereas gold mines could substantially ratchet up production if they wanted to. (If a gold miner increases his mining rate, it doesn't affect the rate of other miners. But if a bitcoin miner suddenly brings a lot more computing capacity online, it's going to decrease the mining rate of other miners.)
- andrepd 11y ago
  Which bitcoin implements.
peter303 11y ago
Bitcoin allows 210 trillion units. 21MM bitcoins times 10MM Satoshis. If Bitcoin was the only currency, then a Satoshi would be somewheres around a dollar in the current global economy. The probably with a bounded currency is that it doesnt match economic growth. Economic growth is the product of innovation times productivity and population growth. It is not unconceivible that in a hundred years there may be a million CPUs/bots toiling per person in a fully expressed Internet of Things. (The current USA level is thought to be about 200 per human including cars, household appliances and cloud databases.) Either the per capita wealth is going to be vastly more than now or a bounded currency highly revalued.
- qopp 11y ago
  The number of bitcoin units is just a property of the number of decimal places that are used in each transaction. Bitcoin can actually be changed to support more in the future if needed. This has no economic effects since you're just adding more ways to subdivide a dollar. If you're looking for weaknesses, there's a list here: https://en.bitcoin.it/wiki/Weaknesses https://en.bitcoin.it/wiki/Weaknesses Deflation is more of an economic problem then subdivision; since it's very unlikely that can be changed.
  - simo7 11y ago
    Currencies have two functions: mean of payment and storing value. A currency like bitcoin can only be the second one in an effective way, that's what I think he meant. And that's a big problem cause we really don't particularly need a better way to store value, but something that makes commerce more effective from a structural point of view not just a technological one.
  - jsprogrammer 11y ago
    Deflation is fatal to traditional currencies as regular principal payments quickly destroy most of the money. Bitcoin does not operate on a debt model and is not susceptible to the kind of deflation that the most widely used currencies are.
- jsprogrammer 11y ago
blibble 11y ago
noone actually transports physical gold, they just transfer the certificates of ownership (physically or electronically)
- aaronhoffman 11y ago
  I have a gold coin in my pocket right now.
- cs702 11y ago
  Those certificates are issued by third parties who must secure, transport, and hide the physical gold. Those third parties spend quite a bit to store the gold in secure facilities guarded around the clock, transport the gold from/to those facilities in armored vehicles, and keep the gold hidden from view, e.g., in underground vaults. Guess who ends up paying fees to cover all those costs? Certificate holders.
  - phillmv 11y ago
    It's not like bitcoin is free, either. A lot of someones burn a lot of electricity 24x7 in order for bitcoin to hold any value, too - and bitcoin holders pay for it just the same.
    - RockyMcNuts 11y ago
      Divide the number of bitcoin transactions by the power spent mining, and each transaction consumes enough power to run an American household for a day and a half. http://motherboard.vice.com/read/bitcoin-is-unsustainable http://motherboard.vice.com/read/bitcoin-is-unsustainable
      - FatalLogic 11y ago
        The biggest flaw with that calculation is that most Bitcoin miners are not located in American households. They're naturally located where electricity is much cheaper: they're using environmentally-generated or surplus power, close to the source, at bulk industrial rates. The author even said it in the same article, but did not factor it into the clickbaiting comparison.
AnimalMuppet 11y ago
But should the world ever value the global stock of Bitcoin similarly to gold? I see no reason to suppose that it should. Why should you pick gold out of the list of options, instead of, say, stocks? Or silver? (In fact, silver is much closer to where it is at the moment.)
flatline 11y ago
> it's cheaper to secure, transport, and hide Secure/hide: It has the same attack surface as gold, plus the downsides of potentially being exposed to online attacks, along with shoddy wallet implementations fail to use sufficient entropy in address generation, fail to only send to valid and current addresses, etc. I don't hear about people having their gold stolen or otherwise losing it on a daily basis, but I do hear about people losing their bitcoins all the time. Transport: an obvious advantage of bitcoin and it is currently cheaper, yet with the uncertainty in the blocksize debate and the utter lack of transparency in fee calculation, this may not always be the case. Transport currently simply fails sometimes on a miner's whim, and the user is left waiting for the transaction to clear from the mempool of enough nodes that they can respend the coins. There is currently no reason to believe that bitcoin per se can scale to even silver sizes from that graph, let alone come anywhere close to gold.
- cs702 11y ago
  Secure/hide: I disagree. A lot of gold is stored in heavily guarded, hidden underground vaults, which have evolved to be secure over thousands of years. I can't imagine why or how securing and hiding Bitcoin could ever be costlier than that. Reasons to believe why Bitcoin might scale to gold sizes from that graph over time: my thoughts on this are at https://cs702.wordpress.com/2011/05/29/on-the-potential-adoption-and-price-appreciation-of-bitcoin-in-the-long-run/ https://cs702.wordpress.com/2011/05/29/on-the-potential-adop...
  - vinceguidry 11y ago
    Yeah, you can encrypt Bitcoin and so secure it with a passphrase, which can be memorized and all hard copies thrown away. Then you can distribute the files in hundreds of places, and not have to secure them. I'd be hard-pressed to imagine a scheme more secure than that. If the crypto fails, Bitcoin is going to be worthless anyway.
    - MichaelGG 11y ago
      So a thief just picks up one of the hundreds of files, points his gun at you and says "What's the passphrase?" I think vaults probably handle that scenario better.
deleted 11y ago
[deleted]
romaniv 11y ago
You're comparing a currency + transaction network with a commodity. IMO, as long as people treat Bitcoin as a commodity it will not achieve its true purpose.

by cs702 11y ago

bunnymancer 11y ago

Bitcoin is, however, unlike gold, not a physically limited resource, which is what makes gold a more functional trading goods. The entire concept of economy relies on the belief that an item without value can be used to represent value. Which is only accomplished through the belief of rarity.

Hortinstein 11y ago
Bitcoin does have a mechanism to mirror this though. The rate of discovery halves every 4 years and only 21 million will ever be issued. When the blockchain was started 50 Bitcoins per block were awarded until november 2012 when it was halved to 25. It is predicted to half again in 2017. https://en.bitcoin.it/w/index.php?title=Controlled_supply&redirect=no https://en.bitcoin.it/w/index.php?title=Controlled_supply&re...
morgante 11y ago
Bitcoin is just as rare as gold (in fact, rarer). Mining only happens at a certain rate (you can't just materialize Bitcoins out of thin air) and it is capped at 21 million total.
- mynameisvlad 11y ago
  You do know where gold comes from, right? From real, physical mines. It's not like you can materialize it out of thin air either (well, strictly speaking, you can, but it's not feasible currently) and there's a limited supply; however much is in the earth.
  - morgante 11y ago
    Uh, yes I know that. My core point is that Bitcoin and gold are equally rare, not that gold is somehow not rare. Bitcoin might be considered "rarer" to the extent that the rate is pretty much fixed. It's not trivial to double the overall mining rate, whereas gold mines could substantially ratchet up production if they wanted to. (If a gold miner increases his mining rate, it doesn't affect the rate of other miners. But if a bitcoin miner suddenly brings a lot more computing capacity online, it's going to decrease the mining rate of other miners.)
andrepd 11y ago
Which bitcoin implements.

peter303 11y ago

Bitcoin allows 210 trillion units. 21MM bitcoins times 10MM Satoshis. If Bitcoin was the only currency, then a Satoshi would be somewheres around a dollar in the current global economy. The probably with a bounded currency is that it doesnt match economic growth. Economic growth is the product of innovation times productivity and population growth. It is not unconceivible that in a hundred years there may be a million CPUs/bots toiling per person in a fully expressed Internet of Things. (The current USA level is thought to be about 200 per human including cars, household appliances and cloud databases.) Either the per capita wealth is going to be vastly more than now or a bounded currency highly revalued.

qopp 11y ago
The number of bitcoin units is just a property of the number of decimal places that are used in each transaction. Bitcoin can actually be changed to support more in the future if needed. This has no economic effects since you're just adding more ways to subdivide a dollar. If you're looking for weaknesses, there's a list here: https://en.bitcoin.it/wiki/Weaknesses https://en.bitcoin.it/wiki/Weaknesses Deflation is more of an economic problem then subdivision; since it's very unlikely that can be changed.
- simo7 11y ago
  Currencies have two functions: mean of payment and storing value. A currency like bitcoin can only be the second one in an effective way, that's what I think he meant. And that's a big problem cause we really don't particularly need a better way to store value, but something that makes commerce more effective from a structural point of view not just a technological one.
- jsprogrammer 11y ago
  Deflation is fatal to traditional currencies as regular principal payments quickly destroy most of the money. Bitcoin does not operate on a debt model and is not susceptible to the kind of deflation that the most widely used currencies are.
jsprogrammer 11y ago

blibble 11y ago

noone actually transports physical gold, they just transfer the certificates of ownership (physically or electronically)

aaronhoffman 11y ago
I have a gold coin in my pocket right now.
cs702 11y ago
Those certificates are issued by third parties who must secure, transport, and hide the physical gold. Those third parties spend quite a bit to store the gold in secure facilities guarded around the clock, transport the gold from/to those facilities in armored vehicles, and keep the gold hidden from view, e.g., in underground vaults. Guess who ends up paying fees to cover all those costs? Certificate holders.
- phillmv 11y ago
  It's not like bitcoin is free, either. A lot of someones burn a lot of electricity 24x7 in order for bitcoin to hold any value, too - and bitcoin holders pay for it just the same.
  - RockyMcNuts 11y ago
    Divide the number of bitcoin transactions by the power spent mining, and each transaction consumes enough power to run an American household for a day and a half. http://motherboard.vice.com/read/bitcoin-is-unsustainable http://motherboard.vice.com/read/bitcoin-is-unsustainable
    - FatalLogic 11y ago
      The biggest flaw with that calculation is that most Bitcoin miners are not located in American households. They're naturally located where electricity is much cheaper: they're using environmentally-generated or surplus power, close to the source, at bulk industrial rates. The author even said it in the same article, but did not factor it into the clickbaiting comparison.

AnimalMuppet 11y ago

But should the world ever value the global stock of Bitcoin similarly to gold? I see no reason to suppose that it should. Why should you pick gold out of the list of options, instead of, say, stocks? Or silver? (In fact, silver is much closer to where it is at the moment.)

flatline 11y ago

> it's cheaper to secure, transport, and hide Secure/hide: It has the same attack surface as gold, plus the downsides of potentially being exposed to online attacks, along with shoddy wallet implementations fail to use sufficient entropy in address generation, fail to only send to valid and current addresses, etc. I don't hear about people having their gold stolen or otherwise losing it on a daily basis, but I do hear about people losing their bitcoins all the time. Transport: an obvious advantage of bitcoin and it is currently cheaper, yet with the uncertainty in the blocksize debate and the utter lack of transparency in fee calculation, this may not always be the case. Transport currently simply fails sometimes on a miner's whim, and the user is left waiting for the transaction to clear from the mempool of enough nodes that they can respend the coins. There is currently no reason to believe that bitcoin per se can scale to even silver sizes from that graph, let alone come anywhere close to gold.

cs702 11y ago
Secure/hide: I disagree. A lot of gold is stored in heavily guarded, hidden underground vaults, which have evolved to be secure over thousands of years. I can't imagine why or how securing and hiding Bitcoin could ever be costlier than that. Reasons to believe why Bitcoin might scale to gold sizes from that graph over time: my thoughts on this are at https://cs702.wordpress.com/2011/05/29/on-the-potential-adoption-and-price-appreciation-of-bitcoin-in-the-long-run/ https://cs702.wordpress.com/2011/05/29/on-the-potential-adop...
- vinceguidry 11y ago
  Yeah, you can encrypt Bitcoin and so secure it with a passphrase, which can be memorized and all hard copies thrown away. Then you can distribute the files in hundreds of places, and not have to secure them. I'd be hard-pressed to imagine a scheme more secure than that. If the crypto fails, Bitcoin is going to be worthless anyway.
  - MichaelGG 11y ago
    So a thief just picks up one of the hundreds of files, points his gun at you and says "What's the passphrase?" I think vaults probably handle that scenario better.

deleted 11y ago

[deleted]

romaniv 11y ago

You're comparing a currency + transaction network with a commodity. IMO, as long as people treat Bitcoin as a commodity it will not achieve its true purpose.