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The real issue with Bitcoin and the reason why it is different from other assets is that there is no actual source of value. A good way of thinking about this i
by lalaland1125 6y ago
The real issue with Bitcoin and the reason why it is different from other assets is that there is no actual source of value. A good way of thinking about this is trying to consider the values of various assets if the government was about the make it illegal to trade them.
A house for instance would still be valuable because you can live in it. Facebook stock would still be valuable because it represents ownership in a real company that generates profit.
Bitcoin however is useless if you can't trade it. There is literally no reason to own Bitcoin except to eventually sell it to someone else.
- ogogmad 6y agoYou could say the same thing about gold throughout much of history. The value of Bitcoin (and historically, gold) is in its stock-to-flow, its fungibility, its divisibility, and so forth. Its use case is mainly as a potential store-of-value, and perhaps even as a medium of exchange.
- arcticbull 6y agoYes, the big difference is gold, once extracted, doesn't cost 0.5% of the entire world's electricity supply to perform 7 transactions per second, which also generate 98g of e-waste each. You can perform a practically unlimited number of transactions per second with gold. Either way, both aren't particularly useful as currency because rigid deflationary currency is bad. Deflation creates inequality, and preserves inequality over time. Rigid currencies are unable to respond to shocks. They are also unable to adapt to the addition of new market participants (births). Give me one good reason why your dollars that you earned in exchange for goods and services should be worth more tomorrow than they are today?
- bigiain 6y ago> You can perform a practically unlimited number of transactions per second with gold. But but but - there's a hard upper limit!!! There's barely 3x10^19 atoms in 1 gram of gold! /s (Obviously we could trade electrons, protons, and neutrons on a side chain to scale transactions up by almost 3 orders of magnitude...)
- arcticbull 6y agoTo be fair, we actually tried the side-chain model when the dollar was backed by gold :) the crypto folks are just speed-running the history of finance. I don't wanna spoil the surprise, but of course, it ended poorly.
- bigiain 6y agoI guess there's a good analogy connecting "floating the dollar" and "stable coins" somewhere. "These crypto coins are 1:1 backed with US Dollars! Except when we arbitrarily decide they aren't any more! Watch the invisible hand at work!!!"
- arcticbull 6y agoOr when international law enforcement decides they're not because 30% of the backing dollars are the proceeds of money laundering. Then you pretend it's fully backed anyways, raise an LEO just because, and move on because crypto. Ah, I do so love the future.
- gjs278 6y agooh no not my heckin electricity and e-waste. stop posting, you’re wasting even more electrons.
- mac_was 6y agoI would not agree, gold is material, and wnehenver in the world you go with a piece of gold you can easily sell it, you don't need computer , electricity and in the case of Armageddon if you survive you will still be able to buy food using gold afterwards.
- lalaland1125 6y agoGold has historically been a pretty bad investment over time compared to actual value generating assets: https://www.macrotrends.net/2608/gold-price-vs-stock-market-100-year-chart https://www.macrotrends.net/2608/gold-price-vs-stock-market-...
- rakoo 6y agoMuch the same can be said about gold. There are some uses, but it's definitely not the reason gold has the value it has today.
- deleted 6y ago[deleted]
- BiasRegularizer 6y agoI believe this applies to all currencies - they don't have intrinsic values. The values are derived from the market. Be it USD, BTC, EUR, or the Zimbabwean dollar. However, the purpose of currency exists as a vehicle for wealth transfer. IMO the biggest problem with most cryptocurrencies is their deflationary nature. Limited supply means they behave more like assets than currency. As currency nobody would want to spend it as they gain value over time. As an asset it lacks intrinsic value, and therefore overall market cap will tank slowly.
- ogogmad 6y ago> As currency nobody would want to spend it as they gain value over time The problem with this argument is that you have to spend money. You have to spend it on food, lodging, entertainment, and so forth. Even if a currency is deflationary, people still have needs.
- BiasRegularizer 6y agoYes, but one would prefer spending money using an inflationary currency since holding on to it devalues over time. As long as inflationary currencies exist, people will prefer to spending those first before deflationary currencies.
- ogogmad 6y agoLet's say you store all your wealth in a deflationary currency, for the obvious reason that it gains value over time. Then converting it to an inflationary currency would simply add overhead. So you would spend the deflationary currency.
- ZephyrP 6y agoYour opening hypothetical leaves the impression that the words which follow it were either an alternate rehearsal for a more blunt observation: "if all your wealth is deflationary, to spend is to lose deflationary currency" or an earnest counterargument-by-analogy which contradicts something very near the bedrock of my own common sense about money; why would anyone with savings in a deflationary currency and the opportunity to spend inflationary currency decide to have & hold that which would decrease in value in favor of (equivalently denominated) spending which won't?