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No, it doesn't offer any confidence that the bitcoin remains valuable. It could collapse entirely; falling prices could scare people out of bitcoins, lowering p

by uvdiv 15y ago

No, it doesn't offer any confidence that the bitcoin remains valuable. It could collapse entirely; falling prices could scare people out of bitcoins, lowering prices further, until bitcoins become absolutely worthless. This can't happen with commodity money because it has intrinsic value -- e.g. if you have an iron ore currency (backed by a ton of iron), it is valuable as long as iron is valuable. You can always sell your iron-dollar to someone who only wants the iron it is backed by. And a fiat currency will remain valuable (as long as it's not diluted by hyperinflation) because the state requires its residents to accept it as payment -- called "legal tender". But bitcoins? They are a bizarre sociological experiment -- a pyramid scheme, an enormous speculative bubble in something that has no intrinsic value. Or perhaps negative value, since bitcoins are costly to "create" -- they consume large amounts of CPU time. What cryptography (reasonably) guarantees is that bitcoins aren't double-spent, aren't created from thin air. Not that they preserve value or are acceptable as payment.

marssaxman 15y ago
As far as I understand it, the only value in any non-commodity-backed currency is a mutual agreement to use it as a medium of exchange for what are effectively IOUs. US dollars have no intrinsic worth, but I know that if you give me some, I can give them to someone else in exchange for something I want, and therefore I am willing to accept them in exchange for my labor. The only value in the dollar you give me is the fact that I can give it back to you later in exchange for something I actually want - but what makes it actual currency, and not just an IOU, is the fact that I can give it to anyone else in a dollar market in exchange for something I want. Part of what makes this work is our mutual knowledge that it would be very hard for either of us to game the system. I can't just print up new dollars and neither can you; this means that the dollars you give me are very likely to have been given to you by someone else, which makes it very likely that I will be able to pass them on to someone else, which makes them useful and therefore valuable. If I could just print up my own dollars out of thin air, I wouldn't actually need to do any work to acquire them, which would make me less likely to accept them in trade for whatever it is you want from me; if everyone else is in the same position, then none of us have any reason to accept dollars from each other, and the currency is no longer useful as a means for exchanging debts. So the usefulness of any currency depends on the degree to which it is difficult to create new currency units. This is what I mean by confidence that bitcoins are going to remain valuable: people can't just pull them out of thin air. It takes a lot of work to get a bitcoin. Right now the bitcoin system is new so lots of people are mining bitcoins, but once there are enough of them it will be easier to get a bitcoin by doing some other kind of work than by mining. This is all we need for bitcoins to become a useful medium of exchange for IOUs, should we decide to use it that way.

by uvdiv 15y ago

marssaxman 15y ago

As far as I understand it, the only value in any non-commodity-backed currency is a mutual agreement to use it as a medium of exchange for what are effectively IOUs. US dollars have no intrinsic worth, but I know that if you give me some, I can give them to someone else in exchange for something I want, and therefore I am willing to accept them in exchange for my labor. The only value in the dollar you give me is the fact that I can give it back to you later in exchange for something I actually want - but what makes it actual currency, and not just an IOU, is the fact that I can give it to anyone else in a dollar market in exchange for something I want. Part of what makes this work is our mutual knowledge that it would be very hard for either of us to game the system. I can't just print up new dollars and neither can you; this means that the dollars you give me are very likely to have been given to you by someone else, which makes it very likely that I will be able to pass them on to someone else, which makes them useful and therefore valuable. If I could just print up my own dollars out of thin air, I wouldn't actually need to do any work to acquire them, which would make me less likely to accept them in trade for whatever it is you want from me; if everyone else is in the same position, then none of us have any reason to accept dollars from each other, and the currency is no longer useful as a means for exchanging debts. So the usefulness of any currency depends on the degree to which it is difficult to create new currency units. This is what I mean by confidence that bitcoins are going to remain valuable: people can't just pull them out of thin air. It takes a lot of work to get a bitcoin. Right now the bitcoin system is new so lots of people are mining bitcoins, but once there are enough of them it will be easier to get a bitcoin by doing some other kind of work than by mining. This is all we need for bitcoins to become a useful medium of exchange for IOUs, should we decide to use it that way.