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People now envision bitcoin as 'store of value', and less like an actual currency. I imagine there are many technical and financial reasons why it will never be

People now envision bitcoin as 'store of value', and less like an actual currency. I imagine there are many technical and financial reasons why it will never be suitable as a currency. (Deflationary by design, technical limitations on size of blocks leading to slowness of transactions) Does being unsuitable as a currency mean it's also unsuitable as a 'store of value'? The answer to that isn't obvious to me. The value of the US dollar comes in part from our ability to pay taxes with it (and perhaps ultimately from the US military). Cryptocurrency has no central authority to enforce its value via taxes or military, and isn't particularly suitable for day-to-day transactions. Without either of those properties, I have a hard to imagining it being a particularly good store of value. But we'll see. I think we're all watching an interesting experiment unfold in real time. I don't think the current price of btc has anything to do with whatever utility it may or may not have as a currency or store of value. The price is entirely informed by speculators hoping to sell it the following day for 100% ROI. I think a collapse is inevitable.

WA 9y ago
And the store of value vision is built on the idea that it'll be possible to convert BTC into any other currency at any time. The other way around: If you can't buy most stuff with it (the case right now) and can't convert it into your everyday currency (maybe happens if the exchanges suddenly go down for some reason, even only temporarily), what's the value of Bitcoin?
- seppin 9y ago
  > what's the value of Bitcoin? Selling it to someone else for more than you paid next week.
  - chakalakasp 9y ago
    You're evading the question. If you can't at some point in the chain trade your fancy bitcoin beads for services or goods, then how is it any different than monopoly money? Right now it is useful because it can be easily traded for currencies that can purchase those things.
    - oarsinsync 9y ago
      Stores of value tend to have high liquidity. I hate the analogy, but a single exchange (or a series of exchanges) going down doesn't prevent you from selling your gold. Your preferred method of selling gold may be temporarily unavailable, but it'll be back. Meanwhile, keeping with that analogy, actually selling gold takes quite a long time when you hold the physical asset yourself, and the fees are not small there either, as validation needs to be performed to confirm the gold you're supplying is authentic. Truly, I hate the analogy, because digital assets like this are supposed to be better, not just as bad, as their physical counterparts.
      - WA 9y ago
        The thing is, if one ore more major exchanges go down, there might be a panic, which rapidly decreases the selling price and thus, the value of BTC. So where is your store or value, if you can’t withdraw? What if a law is passed that allows BTC currency conversion only to a small amount per day, because of whatever reason? Currencies like the USD don’t have this property. There is no need to exchange your money to make it valuable.
  - deleted 9y ago
    [deleted]
  - lawn 9y ago
    Ah, the "Greater fool theory". That's not sustainable though when you have perfect replacements readily available.
jstanley 9y ago
> The value of the US dollar comes in part from our ability to pay taxes with it (and perhaps ultimately from the US military). It doesn't come from either of those things. It only has value because people believe it does, otherwise they would all try to get rid of it as quickly as possible.
- laurus 9y ago
  > It doesn't come from either of those things. Yes it does. You have to pay your taxes in U.S. dollars, so people have to use it. That's one of the purposes of taxes: so that the government-issued currency is used.
  - jstanley 9y ago
    It's quite obvious that the value of USD comes from much more than the taxes people have to pay. If the only demand for USD was from people paying taxes, it would be worth only a small fraction of what it is actually worth.
    - laurus 9y ago
      The "demand for USD" is really demand for goods and services that are priced in USD. Because everyone living in the U.S. uses USD because that's what we pay taxes in in the U.S., most people in the U.S. offer their goods and services in exchange for it.
      - betterunix2 9y ago
        The demand for USD comes from the legal structures that exist in the United States for things like debts, torts, taxes, etc. Basically, if you take out a loan to buy a house, you have a legal obligation to repay it regardless of how it is denominated by your bank; but if you fail to meet that obligation, you will need to deal with a bankruptcy court, which will only deal in USD. So if you take out a 40BTC mortgage and fail to pay, the judge will first convert the value of the house into USD and work out a way to repay (all or part) of the debt in USD. By forcing you to convert what assets you have to USD, the court is creating demand for USD. Of course, banks know this (it is the core of their business) and will therefore denominate loans in USD to avoid the risk of an unfavorable conversion during such a proceeding. Such an unfavorable conversion is exactly what the creditors in the MtGox bankruptcy are facing, because the proceeding involved converting their BTC accounts into JPY according to the exchange rate in 2014. Due to the change in BTC prices recently, that means that under the law the creditors will be fully repaid using what BTC assets MtGox still has, despite the fact that the creditors would receive a far greater payout if they received the amount of BTC that had been in their accounts at the time of the hack. Beyond debts, there are also torts. Suppose I crash my car into your house and you sue me for the damage I caused. The courts will order me to pay in USD; so again, the courts are creating USD demand by creating an obligation to pay with USD. So the demand for USD is only indirectly due to demand for goods and services; after all, there must be some reason why merchants are pricing their wares in USD. The direct driver of demand is the law itself, hence "fiat" currency.
stealthcat 9y ago
>perhaps ultimately from the US military Does this have something to do with aftermath of Vietnam War in 1970s? US got broke, to recover, they made a pact with Saudis, ditched gold and use USD instead for reference currency, and oil transactions are in USD (i.e. 'petrodollars') Then things went downhill globally.

WA 9y ago

And the store of value vision is built on the idea that it'll be possible to convert BTC into any other currency at any time. The other way around: If you can't buy most stuff with it (the case right now) and can't convert it into your everyday currency (maybe happens if the exchanges suddenly go down for some reason, even only temporarily), what's the value of Bitcoin?

seppin 9y ago
> what's the value of Bitcoin? Selling it to someone else for more than you paid next week.
- chakalakasp 9y ago
  You're evading the question. If you can't at some point in the chain trade your fancy bitcoin beads for services or goods, then how is it any different than monopoly money? Right now it is useful because it can be easily traded for currencies that can purchase those things.
  - oarsinsync 9y ago
    Stores of value tend to have high liquidity. I hate the analogy, but a single exchange (or a series of exchanges) going down doesn't prevent you from selling your gold. Your preferred method of selling gold may be temporarily unavailable, but it'll be back. Meanwhile, keeping with that analogy, actually selling gold takes quite a long time when you hold the physical asset yourself, and the fees are not small there either, as validation needs to be performed to confirm the gold you're supplying is authentic. Truly, I hate the analogy, because digital assets like this are supposed to be better, not just as bad, as their physical counterparts.
    - WA 9y ago
      The thing is, if one ore more major exchanges go down, there might be a panic, which rapidly decreases the selling price and thus, the value of BTC. So where is your store or value, if you can’t withdraw? What if a law is passed that allows BTC currency conversion only to a small amount per day, because of whatever reason? Currencies like the USD don’t have this property. There is no need to exchange your money to make it valuable.
- deleted 9y ago
  [deleted]
- lawn 9y ago
  Ah, the "Greater fool theory". That's not sustainable though when you have perfect replacements readily available.

jstanley 9y ago

> The value of the US dollar comes in part from our ability to pay taxes with it (and perhaps ultimately from the US military). It doesn't come from either of those things. It only has value because people believe it does, otherwise they would all try to get rid of it as quickly as possible.

laurus 9y ago
> It doesn't come from either of those things. Yes it does. You have to pay your taxes in U.S. dollars, so people have to use it. That's one of the purposes of taxes: so that the government-issued currency is used.
- jstanley 9y ago
  It's quite obvious that the value of USD comes from much more than the taxes people have to pay. If the only demand for USD was from people paying taxes, it would be worth only a small fraction of what it is actually worth.
  - laurus 9y ago
    The "demand for USD" is really demand for goods and services that are priced in USD. Because everyone living in the U.S. uses USD because that's what we pay taxes in in the U.S., most people in the U.S. offer their goods and services in exchange for it.
    - betterunix2 9y ago
      The demand for USD comes from the legal structures that exist in the United States for things like debts, torts, taxes, etc. Basically, if you take out a loan to buy a house, you have a legal obligation to repay it regardless of how it is denominated by your bank; but if you fail to meet that obligation, you will need to deal with a bankruptcy court, which will only deal in USD. So if you take out a 40BTC mortgage and fail to pay, the judge will first convert the value of the house into USD and work out a way to repay (all or part) of the debt in USD. By forcing you to convert what assets you have to USD, the court is creating demand for USD. Of course, banks know this (it is the core of their business) and will therefore denominate loans in USD to avoid the risk of an unfavorable conversion during such a proceeding. Such an unfavorable conversion is exactly what the creditors in the MtGox bankruptcy are facing, because the proceeding involved converting their BTC accounts into JPY according to the exchange rate in 2014. Due to the change in BTC prices recently, that means that under the law the creditors will be fully repaid using what BTC assets MtGox still has, despite the fact that the creditors would receive a far greater payout if they received the amount of BTC that had been in their accounts at the time of the hack. Beyond debts, there are also torts. Suppose I crash my car into your house and you sue me for the damage I caused. The courts will order me to pay in USD; so again, the courts are creating USD demand by creating an obligation to pay with USD. So the demand for USD is only indirectly due to demand for goods and services; after all, there must be some reason why merchants are pricing their wares in USD. The direct driver of demand is the law itself, hence "fiat" currency.

stealthcat 9y ago

>perhaps ultimately from the US military Does this have something to do with aftermath of Vietnam War in 1970s? US got broke, to recover, they made a pact with Saudis, ditched gold and use USD instead for reference currency, and oil transactions are in USD (i.e. 'petrodollars') Then things went downhill globally.